Blockchain Technology As A Modernizer For Trade Finance.

Blockchain offers a promising solution to trade finance inefficiencies as it enables documents to be digitized and then exchanged in a decentralized manner without the need to rely on a single party to manage this data on behalf of all the parties.

The World Economic Forum has identified that if various blockchain/DLT solutions are implemented globally, $1 trillion in new trade could take place, offsetting an otherwise growing “trade finance gap”, set to reach $2.4 trillion by 2025.

The Marco Polo network, operated by TradeIX, employs software created by R3 and TradeIX to digitize and facilitate trade finance transactions for open account financing. Open account based financing involves an exporter shipping goods without first receiving payment from the importer. The exporter extends 90 day payment terms, during which the importer may be able to sell the goods and pay the invoice without having to borrow funds itself. It’s a risky and capital intensive undertaking for exporters and that’s where financial institutions can help by underwriting the credit or factoring invoices.

The Marco Polo platform integrates into company’s Enterprise Resource Planning (ERP) systems enabling trade documents to be shared across the decentralized network. It also provides the the ability for these businesses to obtain financing from multiple financial institutions through a single dashboard, providing an online marketplace aggregating financial offerings for importers and exporters.

The Opportunity For Accenture.

There seems to be a number of angles for Accenture to pursue in this collaboration. For one, they can introduce the platform across their global client base both to banking institutions as well as large corporate clients. It also provides Accenture with an opportunity to help prospective adopters optimize their overall supply chain process such as order-to-cash which can be large transformational projects.

ERP integration is a large revenue generator for Accenture today, and Accenture has the opportunity to integrate the Marco Polo platform with a number of ERP systems not currently supported by the platform today.

Adoption Will Be Key.

Marco Polo appears to have the potential to make trade finance more efficient. There are certainly synergies between the platform and what Accenture brings to the table, namely expertise in ERP and supply chain as well providing access to their client base that includes large corporates and financial institutions.

However, whether TradeIX and Accenture are able to translate that potential into real adoption remains to be seen and there are some challenges ahead.

For one, very few distributed ledger platforms have made it into production so far and supporting a diverse group of participants around a distributed platform is unlikely to be easy. The solution is only as good as the network it keeps, and if participants become frustrated or disaffected, this may weaken the proposition over time.

Secondly, while there does not to appear other solutions in the market today that are addressing the open account based aspects of trade finance, its possible that blockchain based trade finance solutions such as Tradelens, founded by IBM and Maersk, that went live last year, may start to encroach into Marco Polo’s territory.

No Panacea For Trade Finance.

Marco Polo is no means a panacea for the trade finance industry; the network focuses on a narrow area of trade finance, namely open account financing in a world where financing via Letter Of Credit plays a large role in global trade today.

Nor will it necessarily have a material impact on the growing “trade finance gap” where companies are unable to obtain trade financing. That’s because many of these these organizations affected are in emerging markets or are small to mid-sized entities, neither or which appear to the current target market for Marco Polo today.

That said, this development should still be applauded as a major advancement in the efficiency of global supply chain.

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Today Accenture announced that has invested in and formed a strategic alliance with TradeIX, a Dublin-based company whose open platform uses distributed ledger technology to facilitate the flow of goods, services, transactions and information within a secure environment for global trade.

As an Accenture alumnus and having penned a research note in collaboration with R3 on the topic of trade finance, last April, it’s a subject I have been actively tracking.

Consultancies don’t partner with startups lightly and when they do it is an indication that the fledgling organization has reached a point where it has proved product-market-fit and now needs assistance in scaling the distribution of their products and services.

The Trade Finance Market.

To understand the significance of this development it’s worth taking a look at the size of the trade finance market and the problems that exist with it today.

The global market for trade finance is large, with over U.S.$15.5 trillion of merchandise exports transported around the world of which 80% required trade finance. Trade finance greases the wheels of global transactions by providing financing to importers and exporters.

Global supply chains are inherently decentralized and remain largely paper based today, resulting in unwieldy processes and large paper trails as documents are physically passed from one party to the next. In many cases this can lead to delays in goods being shipped and late payments. Paper based documents are also easy to forge and can invite fraud — in a high profile example in 2014, Standard Chartered narrowly avoided a $200m fraud at China’s Quidao port.

Blockchain Technology As A Modernizer For Trade Finance.

Blockchain offers a promising solution to trade finance inefficiencies as it enables documents to be digitized and then exchanged in a decentralized manner without the need to rely on a single party to manage this data on behalf of all the parties.

The World Economic Forum has identified that if various blockchain/DLT solutions are implemented globally, $1 trillion in new trade could take place, offsetting an otherwise growing “trade finance gap”, set to reach $2.4 trillion by 2025.

The Marco Polo network, operated by TradeIX, employs software created by R3 and TradeIX to digitize and facilitate trade finance transactions for open account financing. Open account based financing involves an exporter shipping goods without first receiving payment from the importer. The exporter extends 90 day payment terms, during which the importer may be able to sell the goods and pay the invoice without having to borrow funds itself. It’s a risky and capital intensive undertaking for exporters and that’s where financial institutions can help by underwriting the credit or factoring invoices.

The Marco Polo platform integrates into company’s Enterprise Resource Planning (ERP) systems enabling trade documents to be shared across the decentralized network. It also provides the the ability for these businesses to obtain financing from multiple financial institutions through a single dashboard, providing an online marketplace aggregating financial offerings for importers and exporters.

The Opportunity For Accenture.

There seems to be a number of angles for Accenture to pursue in this collaboration. For one, they can introduce the platform across their global client base both to banking institutions as well as large corporate clients. It also provides Accenture with an opportunity to help prospective adopters optimize their overall supply chain process such as order-to-cash which can be large transformational projects.

ERP integration is a large revenue generator for Accenture today, and Accenture has the opportunity to integrate the Marco Polo platform with a number of ERP systems not currently supported by the platform today.

Adoption Will Be Key.

Marco Polo appears to have the potential to make trade finance more efficient. There are certainly synergies between the platform and what Accenture brings to the table, namely expertise in ERP and supply chain as well providing access to their client base that includes large corporates and financial institutions.

However, whether TradeIX and Accenture are able to translate that potential into real adoption remains to be seen and there are some challenges ahead.

For one, very few distributed ledger platforms have made it into production so far and supporting a diverse group of participants around a distributed platform is unlikely to be easy. The solution is only as good as the network it keeps, and if participants become frustrated or disaffected, this may weaken the proposition over time.

Secondly, while there does not to appear other solutions in the market today that are addressing the open account based aspects of trade finance, its possible that blockchain based trade finance solutions such as Tradelens, founded by IBM and Maersk, that went live last year, may start to encroach into Marco Polo’s territory.

No Panacea For Trade Finance.

Marco Polo is no means a panacea for the trade finance industry; the network focuses on a narrow area of trade finance, namely open account financing in a world where financing via Letter Of Credit plays a large role in global trade today.

Nor will it necessarily have a material impact on the growing “trade finance gap” where companies are unable to obtain trade financing. That’s because many of these these organizations affected are in emerging markets or are small to mid-sized entities, neither or which appear to the current target market for Marco Polo today.

That said, this development should still be applauded as a major advancement in the efficiency of global supply chain.

(Excerpt) Read more Here | 2019-12-17 23:49:00
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